One of my favourite trading stocks, and products for that matter, is Tesla Motors Inc. (NASDAQ:TSLA). The California based electric car business really leads the pack in so many ways.
Its products are safe – the Tesla X being one of the safest cars on the road today. They also have a very low environmental impact. And let’s face it, the cars are fast – insanely so!!
So what has happened to the Tesla Motors Inc. NASDAQ:TSLA stock in recent sessions?
Simple – the company is looking to acquire Solar City, a market leader in solar energy, with Elon Musk the major shareholder in both businesses. The market responded negatively, with a raft of concern toward the loss making businesses joining forces.
However, the longer term play of making transportation sustainable and lies at the heart of the deal. As such, this may well make sense over the longer term, albeit a term that may see the company needing to raise more cash from the market.
Tesla has been spending heavily, to bring the Model 3 sedan to the mass market, and the need to top up cash, particularly with this controversial deal on the books, may be a little tougher.
Markets Timing and Overall Tenure
Ultimately, the timing and overall tenure of the markets right now, is also a major factor when it comes to the share price response. Markets are currently and almost exclusively focused on this week’s Brexit vote – and anything that is out of step with expectations or may have risk associated with it, is being punished hard.
In short, markets don’t like uncertainty and this Brexit backdrop and lack of tolerance for anything unusual, has more than likely contributed to Tesla’s sell off.
The opportunity in this, of course, is playing the recovery in Tesla. Odds are, right now, there is money long on Solar City, and the same parties are doubling up by being short Tesla – effectively getting paid both sides of the game.
This will of course, unwind, and when it does, the potential for a snap back in the Tesla price will likely be swift and sizeable. Learning how to profit from this opportunity is key, and most market watchers will miss this, simply because of the very significant distraction created by Brexit.
With the tick up in Implied Volatility, using options to either reduce risk or tap into some additional income may be one way to take this trade. Right now, an out of the money covered call is paying a $6.83 or 3.4% income, which if exercised will be closer to 5.2%. However, the reason for the potential returns being so high is the higher level of risk in the trade, given the recent stock price performance and news overhanging the stock. Remembering that trading and investing does involve risk of loss!
Opportunity can sometimes be very well disguised!
Either way, bad news can very often create opportunity, particularly when it is more likely perceived bad news rather than actual bad news. Learning to decide between the two is where the real pay day is!